ASIC raps Macquarie over compliance

After more than 12 months of investigations, ASIC found that Macquarie Equities Ltd, which trades under the Macquarie Private Wealth title, failed to maintain a culture with proper commitment to compliance.
Photo: Jim Rice

Macquarie Group’s financial planning and stockbroking business has been strongly criticised by Australian Securities and Investments Commission chairman
Greg Medcraft
for a poor compliance culture and covering up its repeated failure to abide by rules designed to protect investors.

In a year-long investigation into Macquarie Private Wealth, ASIC uncovered a range of “serious" compliance deficiencies involving a “significant" number of its advisers.

The shortcomings included repeated failure to keep records of client advice and the basis of that advice; and not retaining evidence if clients were sophisticated investors capable of understanding complex financial advice.

“If you’re a financial adviser, commercially I would have thought it was good practice to document the advice and basis for advice you provide someone," Mr Medcraft said.

The incidents stretch as far back as five years and were initially identified by Macquarie in an internal review of client files between 2008 and 2010.

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But they were never reported to ASIC, as required by the regulator’s self-reporting system.

“The most disappointing thing is that we had to uncover it through surveillance, it wasn’t self-reported," Mr Medcraft told The Australian Financial Review.

“The system relies on self-reporting so when we have situations like this it’s very troubling."

Macquarie’s head of banking and financial services, Peter Maher, signed an enforceable undertaking with ASIC on Tuesday to improve its compliance processes and systems although no monetary fine was laid down as part of the deal.

The enforceable undertaking requires Macquarie to develop and implement a plan to rectify any licence risk management and compliance deficiencies with the oversight of an independent expert over the next two years.

Similar reprimands were made to UBS Wealth Management Australia in 2011 and Commonwealth Bank’s financial planning division in 2012.

“The key thing is that when Australians deal with a financial adviser, they should be comfortable that the party will deal with them efficiently, honestly and fairly and that’s what this comes back to," Mr Medcraft said.

ASIC noted Macquarie may have breached the Corporations Act in relation to risk management and the adequacy of advisers’ training.

Clients could be eligible for compensation if an upcoming review by an independent adviser, likely to be a big four accounting firm, finds that customers were adversely impacted due to failings of Macquarie.

Macquarie originally tried to rectify the failures over a four-year period, but ASIC found these actions to be ineffective.

A Macquarie spokeswoman said on Tuesday it had noted ASIC’s concerns and Macquarie Private Wealth Australia was committed to implementing the necessary changes to improve compliance processes and systems, including record-keeping, to address ASIC’s concerns.

“We take our obligations to regulators very seriously," she said.

“We have a strong track record of compliance practice and if concerns are raised, we work diligently to resolve them. Accordingly we have been working and will continue to work constructively with ASIC."

Macquarie Private Wealth’s compliance function has been integrated into Macquarie Group’s centralised compliance team, after concerns over a lack of oversight.

ASIC declined to provide the number of Macquarie advisers in breach of the rules, but said it was significant.

“Not only did we see it again, again and again, we saw it with a significant number of advisers," Mr Medcraft said.

Macquarie Private Wealth employs about 2 per cent of Macquarie’s 14,000 workforce. It typically advises wealthy clients on where to invest their money.

The ASIC findings come at a sensitive time for Macquarie, as it prepares to return to court in Queensland this month over clients who lost money in the $3 billion collapse of Storm Financial.

Investor protection and clamping down on gatekeepers have been two key themes articulated by Mr Medcraft since he took over in 2011.

Earlier on Tuesday, in a statement, Mr Medcraft said:

“ASIC is about ensuring investors can be confident and informed, and central to this is ensuring financial services are provided efficiently, honestly and fairly.

“Our surveillance found Macquarie Private Wealth fell significantly short of this mark, so ASIC took action.

“This is a major EU [enforceable undertaking] affecting one of the wealth industry’s biggest players, which we believe will rectify some serious compliance deficiencies."